April 24, 2020
Another index provider is licensing portfolios aimed at attracting investors looking for opportunities amid the chaos of the coronavirus pandemic.
EQM Indexes, a San Diego-based woman-owned firm, said on Thursday it has developed four equity indices comprised of companies expected to thrive by servicing populations sheltering at home or developing medicines, diagnostics and other approaches to containing and curing the Covid-19 disease.
The indices can be traded beginning next week as separately managed accounts through online broker Folio Financial, said EQM Chief Executive Jane Edmondson. Folio last week absorbed the thematically constructed accounts of customers of Motif Investing, which folded after eight years of operation and backing from Goldman Sachs, J.P. Morgan and such prominent individuals as former SEC Chairman Arthur Levitt and Smith Barney CEO Sallie Krawcheck.
“We’re not trying to capitalize on the situation,” Edmondson said of the pandemic, explaining that the component index companies have fundamental business strategies that carry them beyond the immediacies of the coronavirus crisis.
The products, however, are clearly marked as crisis investments, and Edmondson said they are available for customization and licensing to other firms beyond Folio.
The COVID-19 Stock Index tracks companies developing therapies, vaccines, and/or diagnostic tests, including clinical stage vaccine company Novavax and biotech vaccine developer Moderna.
The Stay at Home Index includes telemedicine operator Teladoc Health, online pet food retailer Chewy, video streaming site Netflix and e-commerce site Etsy.
A parallel Work from Home Index includes such darlings of the moment as teleconferencing software company Zoom Video Communications and e-signature provider DocuSign, Inc.
Investors with a long-term view, can bet on economic recovery with the fourth product, the Global Pandemic Disruption Index that includes Delta Airlines, cruise operator Carnival Corp. and China-based coffee chain operator Luckin Coffee. Edmondson said the index also can be combined with some of the others as a long-short play.
Each index equally weights its component stocks as portfolios are rebalanced.
While Edmondson seeks to license the indexes to fund distributors, others are already off the starting blocks.
Pacer Financial on Tuesday filed a prospectus with the Securities and Exchange Commission for the Pacer BioThreat ETF, a passively managed portfolio of biomedical and security companies chosen by LifeSci Index Partners. It has a proposed ticker symbol of “VIRS.”
Direxion Funds two weeks ago filed for a Work-from-Home ETF that plans to mirror the Solactive Remote Work Index.
EQM has been working on its new indices since January, as the highly contagious virus was spreading from East Asia to Europe, Edmondson said.
“People are always skeptical about thematic ETFs,” she said, comparing the reaction to early indexes focused on online retail merchandisers. “These are truly longer term, secular themes.”
Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, said that the history of new financial products is littered with a host of failures.
“There are going to be a couple of hits and mostly misses,” he said. “I lean more towards the BioThreat ETF or the COVID-19 stock index [that] will hold some of the smaller biotech firms that have vaccines.”